When mortgage rates are falling, banks will vie for your business. But in times like these when rates are rising, you have to shop around and negotiate to get the best rate.
This was the situation I faced in 1994 when we bought our first home. This strategy saved us tens of thousands of dollars over the last 17 years. By shopping around and going back to my bank with better deals offered by their competitors we managed to keep getting better deals. The lesson is to do your homework, a bit of research and don’t be afraid to ask.
Rates were at a 30-year low when Jeff and I first started house hunting in 1994. We were long-time Royal Bank of Canada customers, but we went to a different bank for a quote in the hopes that we’d get some bargaining power. Canada Trust quoted us half a percent below the posted rate of 7.25 per cent, provided we moved our business to them. We went back to RBC and they matched the rate and kept our business.
Three years later, rates fell, and I wanted to renegotiate the mortgage. I shopped around and was offered 1.5 per cent below our RBC rate. RBC ‘s penalty was three months’ interest (roughly $1500) but they offered a compromise of 1.25 per cent below our current rate and extended the five-year term. They kept our business.
We successfully used this same strategy twice more and were down to 4.64 per cent in 2003 but we still paid our mortgage as though our rate were 2 percentage points higher.
Our mistake happened in the fall of 2008 at renewal. Rates were rising and RBC said their best rate was 5.55 per cent for “preferred” customers. I shopped around firmly believing that others would want our business. Scotiabank and TD Canada Trust didn’t. President’s Choice Financial offered the lowest rate at 5.2 per cent and RBC would not match it. We took our mortgage to PCF.
The mistake is that we should have gone with a variable rate, according to Moshe Milevsky’s
column. He says that homeowners – like us – who have substantial equity in their home and have a diversified portfolio of financial assets, should go variable. But I knew that would keep me awake at night, worrying about how much of our payments was going to interest and how much to the principal. We locked our rate for five years and watched rates plummet six months later.
Recently I tried my mortgage-breaking tactics with PCF and asked how much the penalty would be. They used interest rate differential which is far higher than three months’ of interest payments. See Ellen Roseman’s excellent article on “How mortgage penalties can hurt you.”
PCF wasn’t concerned that I would pay the penalty and leave. Instead they wondered if I’d be interested in a line of credit? As readers know from my line of credit woes, that’s the last thing I wanted! I’m still paying the same rate, but the banks should be worried when I renew. I may well be able to self-fund through my RRSPs and leave them asking why they lost a “preferred” customer. http://www.moneyville.ca/blog/post/944882–how-i-saved-thousands-on-my-mortgage?bn=1